Sun Healthcare blames Medicare

Published: Sunday, December 26, 1999

ALBUQUERQUE {AP} Sun Healthcare Group Inc. has blamed most of its financial troubles on cuts in Medicare reimbursements but a federal report also lists several other reasons why the nursing home chain is ailing.

High capital-related costs, reduced demand for auxiliary services and substantial one-time expenses and write-offs also have contributed to Sun's losses, according to the General Accounting Office, an investigative arm of Congress.

In reaction to the congressional report, Sun said in a statement "The prospective payment system has reduced revenues of Sun Healthcare Group Inc. alone by more than $400 million during 1999, without changing the quality of care we are required to deliver."

Sun, one of the nation's largest nursing home chains, is reorganizing under Chapter 11 of the U.S. Bankruptcy Code. The company lost $1.4 billion from October 1998 through last June and has cut more than 10,000 jobs.

The demand and price for nursing-home support services declined because of the new Medicare payment system, the GAO report said. One such support service is rehabilitation therapy that Sun provides under contract to nursing homes.

While payment reimbursements have declined, the quality of service has remained the same, the report said. But the new Medicare system has influenced the "willingness or ability of some nursing homes to accept certain types of Medicare patients," the report said.

The report said nursing homes were reluctant to admit patients who needed expensive services, including costly drug treatments, which may mean the payments are too low. But patients who aren't expected to need long-term care are preferred by nursing homes, "raising concerns that the payments may be too high," according to the report.

Sun's shares slipped to 2.1 cents Thursday, down 0.0040 cent on the over-the-counter market with 1.4 million shares changing hands.